NADA: Top 5 Factors That Will Boost Auto Sales in 2011

DETROIT, Jan. 7, 2011 /PRNewswire-USNewswire/ -- U.S. new-car and light-truck sales are headed for double-digit percentage gains in 2011, says Paul Taylor, chief economist of the National Automobile Dealers Association (NADA).

"The auto industry is coming back strong from what has been a difficult economy," Taylor says. "Auto sales are playing a key role in leading the economic recovery."

With the average age of cars and trucks on the road today at more than 10 years old, Taylor says Americans will need to replace their aging vehicles. This fact, combined with low financing rates and wider credit availability, will help boost new-vehicle sales 12 percent this year, he says.

"Sales will reach 12.9 million new-cars and trucks in 2011," Taylor says. Last year, 11.6 million light vehicles were sold.

Here's a list of NADA's top five factors that will accelerate new-vehicle sales this year:

1. MORE NEW-CAR AND TRUCK CHOICES

Auto manufacturers are producing a wide variety of new-cars and trucks that are headed to dealer showrooms. Next week, for example, the North American International Auto Show in Detroit will display more than 700 new cars and trucks representing more than 50 domestic and international brands from the revitalized automakers in Detroit as well as almost all major Asian and European automakers.

There will be many new hybrid and electric vehicles as well as sedans, crossovers and SUVs with more fuel-efficient combustion engines, including several new models from China.

"The worldwide debut of nearly 40 cars and trucks at the show in Detroit is a strong indicator that the auto industry is making a comeback and will lead to increased manufacturer production and sales in 2011," says Taylor.

"A revitalized auto industry benefits everyone—every consumer, every dealer and every manufacturer," Taylor added.

2. AVAILABLE CREDIT AT HISTORICALLY LOW INTEREST RATES

"Credit availability at a time of very low interest rates will drive new-vehicle sales this year," Taylor says.

The Federal Reserve Board at its last meeting indicated that the performance of the economy is "likely to warrant exceptionally low levels for the federal funds rate for an extended period," which means automaker finance companies and other lenders will be in a position to offer very attractive financing rates on new-car loans, Taylor says.

"Recovering world market conditions and the Federal Reserve's current policy will accelerate the recovery of new-car and truck sales in 2011," Taylor says. "Concern about federal budget deficits and long-term inflation may contribute to higher 30-year fixed rate mortgage rates, but loan rates for car loans four to six years long are likely to see only modest increases over the next year as the economy grows."

"Federal regulators need to make sure that loans continue to be approved for car shoppers with reasonable credit," Taylor says.

3. TAX CERTAINTY LEADS TO ECONOMIC GROWTH

The extension of tax policy (often called the "Bush tax cuts") by Congress in December 2010, combined with the budget extension to fund the government, will provide at least a two-year horizon for business investment and consumer planning that should bolster economic growth, Taylor says.

4. STOCK MARKET RISE BOOSTS LUXURY CAR SALES

The Dow Jones Industrial Average and S&P 500 index closed in mid-December 2010 at their highest levels since September 2008.

"Continued stock market gains will boost luxury car sales this year," according to Taylor. "Already strong sales of luxury vehicles have been assisted by stock market gains. Stock performance influences those who own significant amounts of stock outside of retirement programs, and who buy most of the new luxury vehicles."  

5. RISING GASOLINE PRICES EXPAND VEHICLE SALES MIX

"While never good for the economy, higher gas prices increase consumer demand for small cars, hybrid vehicles and diesels," Taylor says. "New cars are more fuel efficient."

Many industry analysts are predicting that gasoline prices will exceed $3.50 a gallon in early 2011. In the summer of 2008, gasoline prices hit record levels of more than $4 a gallon.

Taylor says that higher gasoline prices will also increase demand for the more expensive hybrids that typically languish on dealer lots when gasoline prices are lower. Sales of diesel cars and trucks will increase as well, he says.

"In the first quarter of 2011 and beyond, new gasoline and diesel hybrid cars and light trucks entering the market will get a stronger look from consumers concerned by high gasoline prices," Taylor says.

"According to the NADA Used Car Guide, the value of small cars and hybrids during times of high fuel prices will increase in the used-vehicle market, and values for large vehicles in the light-truck segment, such as truck-based SUVs, will moderate," Taylor says.

Auto sales were led by crossover utility vehicles (CUVs), which accounted for about 25 percent of total U.S. new-vehicle sales in 2010. CUV sales, which grew by about 24 percent last year, more than doubled the growth rate of overall new-car and truck sales nationwide.

"CUVs and hybrid CUVs are clearly the vehicles of the future, and are represented by a large number of production and concept vehicles on display at the auto show in Detroit," Taylor says.

About NADA: The National Automobile Dealers Association, founded in 1917, represents about 16,000 new-car and truck dealers, with about 34,700 franchises, both domestic and international. For more information, visit www.NADA.org.

SOURCE National Automobile Dealers Association

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